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The surge in expectations of future inflation has been accompanied by a weaker dollar, higher gold and oil prices as investors view QE as heightening the risk of rising consumer prices in the future.
Unlike prior episodes of QE in late 2008 and 2010 when inflation break-evens were much lower and suggesting the spectre of deflation, the Fed is deploying QE3 in order to boost employment. The central bank is also keeping bond purchases open-ended and has extended its guidance for maintaining low rates into 2015.
That has sparked concern among investors that the central bank is prepared to tolerate a much higher inflation rate in the future, propelling the pronounced rise in break-evens over recent days.